By: BCM Investment Team
Let’s talk inflation. As producer price inflation climbs—PPI saw a decade-high year-over-year increase in March—manufacturers are starting to push those costs through to consumers. CPI has been climbing since news of a Covid-19 vaccine hit the wire, but it still paints an incomplete picture of the situation, particularly in light of pandemic-induced changes to spending patterns. And as consumers grow more wary about climbing costs, mentions of inflation on earnings calls have more than tripled in a trend that could point to higher CPI growth ahead. But at what level does CPI growth start to affect equity valuations themselves? Meanwhile, commodity prices are climbing—particularly lumber and industrial metals—in what could be yet more evidence for approaching inflation. Perspective is everything though, and it’s worth remembering that market-based inflation expectations, while significantly higher than they were in early 2020, have only climbed back to 2013 levels. It’s also worth remembering that while Covid optimism is a driving force behind much of this, a fourth wave remains a significant economic and humanitarian threat.
1. After years of tepid growth and benign inflation, manufacturers are able and willing to pass on their price increases:
2. Most consumers will confirm that prices for food, at the hardware store or at the pump are higher than what CPI tells us…
3. If optimistic consumer outlooks often translate into a positive for the economy, will inflation concerns have a dampening effect?
4. Many companies have already announced price increases. Certainly, companies are not shy about mentioning higher prices:
5. Small price increases are easier for companies to pass on to consumers and thus historically, inflation only substantively affects earnings when it exceeds 4%:
6. As always, we need perspective. Yes, inflation and market inflation expectations (below) are almost 2% higher, but they are only at 2013 levels:
7. Home improvement and new housing demand are spiking lumber prices:
8. Global industrial demand is driving steel, copper and other metal prices to levels not seen in decades:
9. Just in time for the Olympics, will Japan’s fourth wave look like India’s?
10. Why the U.S. Government just implemented travel bans to over 100 countries:
This article was contributed by Beaumont Capital Management, a participant in the ETF Strategist Channel.
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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.